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4.5. Summary of Cost Savings

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Savings from Economic Incentives


The cost savings discussed in this section are summarized in Table 4-1. Compliance costs are used as the basis for the estimates. Market-based instruments are unlikely to produce significant savings in government environmental regulatory costs, as agencies would still have to promulgate regulations and monitor and enforce the programs. As shown in column (3), 1992 projected savings are estimated to be $5.7 billion in 1986 dollars (not counting an additional $2 billion from liability rules of the Oil Pollution Act) and are projected to increase to $9.7 billion by the year 2000 (again not counting $2 billion from liability rules under OPA). Potential savings from the full the use of additional incentives are estimated to be about $35 billion. If the Kyoto Protocol is ratified and becomes binding on the U.S., savings from trading greenhouse gas emission reduction obligations both internationally and domestically could produce savings to the U.S. economy of $100 billion annually relative to a command and control alternative.
Table 4-1. ESTIMATED COST SAVINGS FROM USE OF ECONOMIC INCENTIVES
(billions of 1986 dollars annualized at seven percent)
1
Media/
Program
2
Pollution Control Costs in 1992
3
Savings Due to Existing Incentive Mechanisms
4
Pollution Control Costs in 2000
5
Projected Savings in 2000 from Existing Incentives
6
Potential Savings with Full Incentives
7
Additional Savings Possible
3. Air
28.9
1.7
43.5
3.9
17.9
14.0
3.1.1 Stationary
20.2
1.7
28.7
3.8
14.4
10.9
3.1.2 Mobile
8.2
.0
14.1
.1
3.5
3.4
3.2 Radiation
0.5
.7
4. Water
45.1
1.6
57.4
2.3
17.3
15.0
4.1.1 Point Source
40.7
1.6
50.7
2.2
17.2
15.0
4.1.2 Non-point
.3
.4
.05
.05
0
4.3 Drinking
4.1
6.3
5. Land
32.6
.25
45.6
0.5
.9
.4
5.1 Solid Waste
18.7
.1
22.3
.25
.65
.4
5.2Hazardous
7.0
.15
11.7
.25
.25
0
5.3 LUST
4.1
3.5
5.4Superfund
2.8
8.1
8. Total
106.6
3.5
146.5
6.7
36.1
29.74
Footnotes to Table 4-1

All columns:
Line 3: Total of lines 3.1.1 through 3.2
Line 4: Total of lines 4.1.1 through 4.3.
Line 5: Sum of lines 5.1 through 5.4.
Line 8. Sum of lines 3, 4, and 5.

Column (1): Media and program names used in EPA (1990), line numbering and report sections correspond to those used in most tables of EPA (1990).

Column (2) and (4): Excludes those costs which are predominantly regulatory in nature since regulatory costs are not likely to be reduced using more economic incentives.
Lines 3.1.1, 3.1.2, and 3.2: Total costs minus state and local and EPA costs found in corresponding lines of U.S. EPA (1990), Tables 3-3A and 3-3B. Includes full implementation costs.
Line 4.1.1: Total costs found in corresponding line of U.S. EPA (1990), Table 4-3A, minus full implementation costs.
Line 4.1.2: Total costs found in corresponding line of U.S. EPA (1990) minus state and local government expenditures.
Line 4.3: Total costs found in corresponding line of U.S. EPA (1990) minus EPA and state government expenditures.
Lines 5.1 through 5.3: Total costs found on corresponding lines of U.S. EPA (1990), Tables 5-3A, minus EPA costs.
Line 5.4: Total costs found on corresponding lines of U.S. EPA (1990), Table 5-3B.

Column (3):
Line 3.1.1: Midpoint of range for air emissions trading provided by Hahn and Hester ($1.1 billion), plus $200-$300 million from Phase I Acid Rain controls, plus $170 million from SARA Title III requirements, plus $50-$100 million from RECLAIM, as explained in text.
Line 3.1.2: No current savings.
Line 4.1.1: Three and one-half percent of column (3), plus $100 million for savings attributable to reporting requirements. Based on a ten percent saving on one-half of current effluent discharge control costs due to effluent permit charge systems imposed in about two-thirds of the states. Omits several incentives with potentially significant current impact: effluent charges, effluent discharge permit fees and liability rules under CERCLA and the Oil Pollution Act of 1990.
Line 5.1: Assumes a 25 percent saving or $50 from 2 million households from marginal cost pricing for solid waste disposal, as explained in text.
Line 5.2: Reporting requirements for hazardous wastes reduce volumes at lower cost than comparable command and control approach, saving an estimated $150 million annually.
Lines 5.3 and 5.4: Incentive effect on current behavior may affect future costs.

Column (5):
Line 3.1.1: Assumes continued $1.1 billion annual savings from air emissions trading, $.8 billion from Acid Rain trading program, $1.3 billion from SARA Title III, $300 million from RECLAIM, and $100 million from scrapping older vehicles.
Line 3.1.2: Assumes total saving of $100 million from oxygenates trading, clean fuel vehicle trading program and heavy duty truck emission averaging.
Line 4.1.1: Five percent of column (5), as explained under column (4).
Line 4.1.2: $20 million savings from full use of existing point-nonpoint trading programs.
Line 5.1: Assumes unit disposal pricing is extended to twice as many households (4 million) and saves 20 percent more ($60) for each household because of the increasing real cost of disposal.
Line 5.2: Disposal charges for RCRA wastes reduce volumes and overall costs by an estimated 20 percent, as explained in text.

Column (6):
Line 3.1.1: Potential savings of 50 percent of $28.7 billion, or $14.4 billion, as explained in text.
Line 3.1.2: Potential savings of 25 percent of 14.1 billion, or $3.5 billion, as explained in text.
Line 4.1.1: Potential savings of one-third of year 2000 costs, or $17.2 billion, as explained in text.
Line 4.1.2: No change in projected nonpoint control cost savings, unless additional incentive-based programs are adopted.
Line 5.1: Assumes adoption of per-can pricing in one-half of the U.S., saving 20 percent in costs where it is adopted, or 10 percent of national solid waste disposal costs, plus additional savings of 20 percent due to the adoption of tradeable permits in the recycled content of products, tradable permits in packaging requirements and/or virgin materials taxes.
Line 5.2: Assumes no additional incentives are adopted.
Line 5.4: Assumes no change in current Superfund program; transactions costs could be reduced if a formula for responsible party shares were adopted in legislation.

Column (7): Column (6) minus column (5)
__________________________
Table 4-2 puts these savings into perspective relative to the total national costs of pollution control in the air, water, and land media. Since the costs shown in column (4) of Table 4-1 and line 1 of Table 2-3 are the actual projected non-regulatory costs in the year 2000, it is necessary to add the projected regulatory costs (shown in line 2 of Table 4-2) and the projected savings from existing incentives in that year (shown in column (5) of Table 4-2 and line 3 of Table 4-2), to obtain the total costs without incentives (line 4). The projected savings, additional savings, and total potential savings can then be compared with these totals (lines 5, 6, and 7). As shown on line 6, the greatest percentage additional savings are to be found in air. An additional 19 percent of projected pollution costs could be saved in the year 2000 through full use of useful and available economic incentives. In 1992 dollars, that comes to about $29 billion. Although there are some difficulties in doing so, it may be useful to place this number in perspective by pointing out that these additional possible savings come to about one-half of one percent of gross domestic product.
Table 4.2. SUMMARY OF ESTIMATED COST SAVINGS IN 2000
FROM USE OF ECONOMIC INCENTIVES
(billions of 1986 dollars annualized at seven percent except as otherwise noted)
Medium
Air
Water
Land
Total
1. Projected Non-regulatory Costs
43.5
57.4
45.6
146.5
2. Projected Regulatory Costs
1.4
0.8
0.6
2.8
3. Projected Savings from Existing Incentives
3.9
2.3
0.5
6.7
4. Total Costs without Savings
48.8
60.5
46.7
156.0
5. Projected Savings as a Percentage of Total Costs without Savings
8.0
3.8
1.0
4.3
6. Additional Savings Possible as a Percentage of Total Costs without Savings
28.6
24.8
0.8
18.8
7. Total Potential Savings as a Percentage of Total Costs without Savings
36.6
28.6
1.8
23.1
Footnotes for Table 4-2 by Line:

1. From column (4) of Table 4-2.
2. Regulatory costs for EPA, state, and local government subtracted from the totals given in EPA (1990) in deriving the non-regulatory costs shown in column (4) of Table 4-1.
3. From column (5) of Table 4-1.
4. Sum of lines 1, 2, and 3 of this Table.
5. Column (5) of Table 4-1 as a percentage of line 4 of this table.
6. Column (6) of Table 4-1 as a percentage of line 4 of this table.
7. Sum of lines 5 and 6.


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